THREATENED AND OPPORTUNED SECTORS IN NIGERIA ECONOMY

Hit by the sudden crash in global oil price and falling value of the Naira, the economy experiences a resultant slow growth. Consequently, nearly every entrepreneur you meet has had his/her business affected in some way. While some recount rising cost of goods or production, inevitably leading to a high selling price at which the market is not willing to buy, others are trying to figure out how to keep the business running when there are clear signs that circumstances have replaced their offered value with an alternative. Ironically, this Nigerian unique macroeconomic landscape offers both opportunities and threats across diverse sectors in 2016.

We hereby present a sector analysis of businesses from recent fiscal and monetary policies, providing clearer directions for investors and businesses, for their strategic planning and profitability.

Opportuned Sectors.

Agriculture.

The ban on rice import; FX impact on prices of foreign foods, leading to demand for local foods and raw materials; increasing government policies and funding support for agriculture; a growing population; increasing demand for export products etc. are pointers to the growing opportunities of this sector.

How to maximize the opportunities: Apply for the single digit MSME Development Fund and Commercial Agriculture Credit Scheme (CACS) through Diamond Bank; provide locally sourced alternative to imported raw materials and agro foods; Plug into supply opportunities such as fresh Agricultural products to Shoprite local sourcing scheme, tomatoes for Dangote tomato factory, eggs for Kaduna state students feeding scheme, vegetables for Anambra processing and export scheme etc.

2. Non-Oil Exports.

Non-Oil export is a much needed solution to balance the Foreign Exchange and reduce the pressure on the Naira. The current government has been negotiating export opportunities for local export products with some European countries. Nigeria is a major import gateway to other West African countries that have demand for all sorts of raw and processed Agricultural products from Nigeria.

How to maximize the opportunities: Having the right capacity, identifying a good lead and the capability to add value are key. One of the best advised steps towards taking advantage of the export opportunities is to leverage the Nigeria Export Promotion Council’s (NEPC)

3. Health.

With over 170 million people in need of health care in Nigeria, there still exist a large supply to demand gap, especially due to the poor development of the sector. An estimated N260 billion is spent by 30,000 Nigerians annually in medical tourism.

How to maximize the opportunities: As the foreign exchange challenges create more local opportunities, resulting from inability to afford medical tourism, this is a good time for entrepreneurs to come up with innovative and competitive solutions. Consider providing affordable healthcare insurance services to cater for clients more disposed to structured medical bill payment system. Capable and reliable distributors and retailers of healthcare products are needed. The notoriously slow emergency response services in Nigeria requires investment and improvement.

4. Food and Drink.

Nigeria’s dependence on imported food and drink in the midst of a weak Naira has resulted in inflation of the products’ prices, accelerating faster than core inflation, weighing heavily on consumption. Despite economic headwinds, this $6 billion p.a sector is favored by the demography of the country and robust aggregate private consumption. Food and Drink businesses have continued to thrive due to their relevance in meeting the human essential need, and show strong prospects for the year 2016.

How to maximize the opportunities: While food and drink meet one of the most essential human needs, people are increasingly becoming choosy with what they eat. Such factors as health, delicacy, hygiene and convenience are becoming increasingly relevant, and make the entrepreneurs in the sector that take them as the basis of their planning, outstanding and successful. Food businesses should target market segments right for their niche offerings.

5. Manufacturing.

The new drive towards consuming “made in Nigeria” goods appear to be yielding results. The patronage focus now is on local manufacturing resulting from foreign products becoming too expensive for retail and commercial consumers. Recent statistics indicate that the manufacturing sector has remained bullish as the government encourages local production with policies such as: The local content law; low cost funds channeled through CBN and BOI; the automotive policy that has enabled over 10 auto assembling plants to set up in Nigeria etc.

How to maximize the opportunities: Smart manufacturers are adding value to the product as their contribution towards making the products compete with foreign brands. Manufacturers should cut the high production costs and may consider outsourcing some of the business processes such as marketing, branding and packaging to other businesses. There is a huge opportunity now in identifying companies that cannot afford foreign raw materials, spare parts, finished goods and offer them competitive locally produced alternatives.

6. Security Solutions.

Crime and security risks in Nigeria are driven by the severe threat of terrorist attacks, high levels of violent crime and endemic corruption. Organized criminal groups are highly active across the country, and businesses are exposed to the threat of piracy, financial fraud and cyber-crime. These are top priority budget items of the government and organizations, and hence pose endless opportunities to businesses operating within this sector.

How to maximize the opportunities: As one of the most critical priority projects of the current government which carries a huge budget, this is a time to come up with innovative approaches that can solve security problems at reasonable costs.

Businesses from such fields as engineering, technology, training / advisory, forensic , accounting/audit and several others stand good opportunities to provide security solutions to the government, companies, communities and individuals. The word is INNOVATION!

Summary- Opportuned Sector.

SMEs should be bullish in investing in the agricultural and manufacturing sectors.

SMEs need to formalize their businesses so as to access credit at lower interest rates.

It is imperative for SMEs to upgrade their knowledge and skills, so as to compete profitably.

SMEs should get exposure and frequent updates on trends and developments across these sectors.

Joining a corporative or business association helps as a platform to access intervention funds.

Sectors Under Potential Threat.

Oil and Gas.

Consequent of the crash in oil price, this sectors is currently threatened by lower earnings, delayed projects, failure to meet obligations to the business community, non-performing loans, and long-term production stagnation from the Petroleum Industry Bill (PIB) pending adoption etc. The ills of the nation’s over dependence on oil revenue have revealed the opportunities inherent in other sectors.

How to mitigate: From expert projections, this would likely not last too long. Steps should be taken to play safe, cut down on expenses and seek innovative ways to compete for the limited funds circulating in this sector.

2. Importation Businesses.

There has been a further fall of the Naira value, resulting in rise in the shelve prices of imported goods. This situation left the buyers whose earning values have equally shrank with the choice of buying a fraction of what they used to buy, and quest for whatever available alternatives they can afford. 41 Items remain banned from the CBN official foreign exchange window, importers of these products would experience a tough time in addition to sourcing FX from the parallel markets.

How to mitigate: As the risks with importation soar, people resort to the locally produced cheaper alternatives, this increases demand for non-oil export and local production. Affected importers can remain in business through backward integration. They can source local alternatives, find ways to add value to the products, then passing them down to the same market they served.

3. Real Estate and Construction.

The Real Estate sector is capital driven and thrives where there is liquidity. Currently the weakened Naira value, high cost of the mostly imported building materials make the average investor want to take a more averse stance towards investments at this time.

How to mitigate: 30% of 2016 budget (N1.8trillion) is to be spent on infrastructure. Real Estate remains a solution to a human essential need, property renting and leasing now have more opportunity than selling. Buy price slashed properties from panicked sellers, and shelve building plans to avoid building at a high cost for a market with diminished appetite and buying power. Building low cost houses for the middle class would however sell more than luxury properties at this time. It is a time for contractors and traders in the value chain to network more and build competitiveness by introducing more value and innovation to their businesses.

4. Entertainment.

Nigerians are quite fun loving, the recently rebased economy included the entertainment industry, which recorded over N300 billion gross revenue p.a. There are also a lot of government, local and foreign investments going into this fast growing sector, making it a no brainer opportunity for most savvy investors. However in a situation of survival as the state of the economy bites harder, spending on this sector becomes easily prone to being plugged.

How to mitigate: Entertainment remains essential to living. Hence entertainment solutions strategically designed with the lifestyle based needs of the targeted market in mind would sell. Eg. A family club fitted with gym, spa, kids’ game arcade, movies etc; with suitable payment plans, proposed to working class people for work/life balance, would likely make a feasible venture. This is a time to introduce promotions and offer deals to motivate spending on entertainment. Cutting cost of services and going lean would help to offer attractive and pocket friendly prices to the customers.

Summary- Sectors Under Potential Threat.

Ensure that product pricing is elastic enough to adjust for the inherent risk in these sectors.

Maintain a short term investment horizon so that strategic exit can be made in times of exacerbated risk.